How do market response? when people get stress.

How do market response? when people get stress.

When people get stress on market, and cannot make any complicated decision, will VIX reflect this situation? and how does market move responing to this behaviors? going UP or DOWN?

Does anyone have any suggestions?
Thanks in advance for any suggestions

Posted: Fri Nov 30, 2012 11:32 am

by Toosday

IMHO, The biggest thing I look for is when markets are extra sensitive to seemingly meaningless news. To me, the process looks something like:

Below "I" refers to any speculator or investor: I am unsure of what the effect large systemic imbalances will have long term therefore I become overly reactive to any sort of news.

Take the fiscal cliff. Regardless of the outcome, the US govt's financial situation will not be significantly impacted. If the market drops it is due to the realization that there are severe structural problems with the economy (mostly related to money printing). If the market rallies then it is due to the money printing's inflationary effects finally coming to light. IMHO, both of these outcomes is only minimally effected by what happens with the fiscal cliff. It is kind of like an enzyme in a biological system. Enzymes do not impact the overall energy released from a reaction, they just provide the initiation energy for the reaction.

Can I say that this situation will be reflected on VIX? which will be higher, when markets are extra sensitive.

Thanks you very much for any suggestions

Posted: Fri Nov 30, 2012 7:08 pm

by Toosday

I personally think using the VIX as an indicator is extremely difficult. I find it to be reactionary not predictive. That is not to say you can't trade VIX, I just do not think it correlates to future movements very well.

Posted: Sat Dec 01, 2012 9:57 am

by stamo

Toosday wrote:I find it to be reactionary not predictive.

Amen.

Posted: Sat Dec 01, 2012 11:51 am

by oem7110

When markets are extra sensitive, in general, will market tend to go UP or DOWN based on your experience?

Does anyone have any suggestions?
Thanks everyone very much for any suggestions

Posted: Sat Dec 01, 2012 12:04 pm

by stamo

I think Ned Davis has it right: â€œThe market will usually do what it needs to do to prove a crowd extreme wrong.â€

Enter positions ? or Exit positions ?
Does anyone have any suggestions based on your experience?

Thanks in advance for any suggestions

if you are systematic etc----seemingly meaningless news does not factor.
if you are discretionary - then either there is no such thing as meaningless news - only news the market is reacting to.
OR,
you forgot the other alternative - if the market reacts to seemingly meaningless news, you can choose to do something else - NOTHING......
Sit out and wait until the market reacts to seemingly meaningful news.

Posted: Mon Dec 03, 2012 11:49 am

by Toosday

I was reading VIc Sperandeo's interview in New Market Wizards and he talks about trading the 1984 or 1986 tax deals and getting crushed. He feels you should wait for the market to confirm a direction and not try to go off of what the politicians are saying. I have taken that tact with the fiscal cliff.

What you say - Tredfollowers do that
Mean reversion traders do opposite..so it depends what camp you are in.

Re: How do market response? when people get stress.

Posted: Tue Jul 07, 2015 11:55 am

by sinkpretend

This is not just a market psychology but human tendency, If a event bothers a single person ripples are communicated to groups and waves traverse through societies. In 1929 the great stock market crash is the best example we can take. A single tragedy made more people restless and by 1932 multiple businesses and Banks were declined. Market responds to the flow that is created by its audience.